Monday, April 17, 2006

Software Picks Best Baseball Players

Until recently, when it came time to make player acquisitions and trades, baseball executives had to sift through hundreds of pages of handwritten scouting reports and voicemail messages to piece together player profiles. In 1998, IBM came up with software that could consolidate that information, but now IBM is getting competition from E Solutions, an upstart 30-person IT firm with a program called ScoutAdvisor--web-based software that slices and dices player information any way a team wants it.

"Baseball has changed--there are enormous payroll costs," says David Ritterpusch, 63, director of baseball information systems for the Baltimore Orioles, an E Solutions client. Late last year the Orioles wanted to sign a utility infielder with strong third-base skills. Using the software, configured with the Orioles' proprietary formula on how to evaluate third basemen, Ritterpusch searched the entire Major League Baseball roster for candidates. ScoutAdvisor spit out 81 names ranked in order of preference, and the team signed No. 3 on the list, Chris Gomez.

While ten of the 30 major league clubs use IBM's PROS software and another ten use homegrown solutions, E Solutions has quietly captured the remaining third of the league. In December the Anaheim Angels became the latest team to sign up, following three playoff teams from last season: the Red Sox, the New York Yankees, and the St. Louis Cardinals. Later this year E Solutions will roll out a version of the software for NFL teams, and a basketball product will follow sometime in 2006.

CEO Richard Nicholas, 42, founded E Solutions in 1998 after two decades as an independent IT contractor. Nicholas hired current partner and E Solutions president Michael Morizio, 48, away from IBM after they had worked together on various tech jobs. The two soon landed contracts to build intranets for the Tampa outposts of clients such as Exxon Mobil. In late 1999, E Solutions, two blocks from the Yankees' Florida offices, got a phone call from the team. Owner George Steinbrenner was looking for someone nearby to make minor upgrades to his archaic scouting system.

"We were so cocky," says Nicholas. "The Yankees were still doing manual data entry; their scouts were still faxing reports back. We saw a chance to build something huge for them." But Yankees management, happy with a few small tweaks, wasn't interested in overhauling its entire scouting system.

Back then, only a few general managers were using statistical analysis sophisticated enough to call for special software. This was three years before Moneyball, the bestseller by Michael Lewis, profiled Billy Beane as the first manager to look past the most obvious stats, such as RBIs or batting averages, to evaluate potential players. (Beane realized that a player's on-base percentage--which counts walks--was a better measure of his offensive worth.) Most MLB teams were running jury-rigged systems that barely alleviated the workload for their scouts. Says Amiel Sawdaye, 27, assistant director of amateur scouting for the Red Sox: "Baseball, even with its $300 million--plus organizations, has always been five to ten years behind Fortune 500 businesses."

In August 2000 two reps from E Solutions flew to Long Beach to attend the Area Code Games, a regional scouting event for high school players. E Solutions was armed with software inspired by what Morizio had seen while fixing the Yankees' program. "We walked by the press box and told some reporter that we had a newfangled scouting system," says Morizio. Within 30 minutes E Solutions was surrounded by scouts from the Oakland Athletics and the San Diego Padres. A month later company engineers rewrote the program to match specific requests made by both teams. ("Nobody in baseball wants anyone else to know how they work," says Nicholas.) In early 2003, Moneyball was released, and a growing number of teams--including Boston, the Cleveland Indians, and the Los Angeles Dodgers--started hiring Wall Street consultants to help them crunch numbers and select players at the right price. E Solutions was already developing a reputation for excellent customer service--scouts could call project manager Mike Lane to request tweaks and the changes would be made before they got off the phone. By the beginning of the 2003 season the company had signed up six clubs.

About 80% of ScoutAdvisor looks and feels the same for every team. For less than $75,000 a year, a team gets 14 modules that show data such as game-day reports (a reconstruction of players' performances in the organization's major- and minor-league games), characteristics of international players, and contract information for all MLB players. IBM's PROS provides similar modules, but sells them separately at prices ranging from $35,000 to $50,000. A PROS solution with all the modules runs about $150,000, and after the first year, IBM charges by the hour for any tweaks to the software. "We will make any change at any time," says Tony Thallman, a project manager with IBM Sports Marketing, noting that IBM prefers to work with a team's front office rather than with the scouts themselves. "We guide the front office and try to eliminate changes they want to make after deployment."

E Solutions' customized approach is more labor-intensive, but Nicholas says it's worth it. "We've customized this software for one client 30 times," he says. "Those hundreds of data points can be daunting, but it helps that we live and breathe baseball."